In 2025, Korea's industrial sectors saw diverging fortunes. Autos and petrochemicals struggled under the impact of U.S. high tariffs and the Russia-Ukraine war, while shipbuilding and defense enjoyed a boom on rising global demand. We examine key issues that will drive the global economy in 2026 and forecast their sector-by-sector impact. [Editor's note]
When a fighter jet with a pilot takes off from an air base, an unmanned aircraft is launched from another base. The pilot flies near the unmanned aircraft, performs consolidation with the system, then begins control. The unmanned aircraft penetrates deep into enemy territory in place of the pilot and precisely carries out various missions such as reconnaissance, surveillance, and strike. The pilot, watching from a distance, safely returns to base.
This is a scene from Korea's manned-unmanned teaming system (MUM-T) envisioned by Korea Aerospace Industries (KAI), which is developing the all-purpose unmanned aircraft (AAP). On the 8th, Kang Byeong-gil, head of KAI's future systems research office, said, "Korea's development pace is currently about three years behind advanced countries," adding, "We will catch up by focusing more on AAP development."
Korea's defense industry is tightening the reins to leap into a powerhouse in advanced weapons. Countries around the world are pouring in massive funds to secure advanced weapons that can maximize combat efficiency while minimizing human sacrifice. Having focused on exporting traditional weapons systems through last year, Korea's defense industry plans to rapidly secure advanced weapons technology, build a solid long-term growth structure, and lead the global market.
◇ Money is pouring into advanced weapons… defense budgets rise and investments flow into AI defense startups
The biggest theme for the global defense industry this year is artificial intelligence (AI) and the digital transformation it enables. Global consulting firm Deloitte Touche Tohmatsu Limited (DTTL), in its "2026 aerospace and defense industry outlook," said, "Digital transformation is no longer an aspirational goal but a necessity." National defense budgets are concentrating investment in autonomous unmanned systems, drones, and advanced weapon platforms. DTTL added, "This year, agentic (self-judging and reasoning) AI is expected to progress from pilot projects to large-scale deployment."
In fact, the United States has set a record $900.6 billion (about 1,293 trillion won) defense budget for the 2026 fiscal year, of which $145.7 billion (about 209 trillion won), or 16%, is allocated to research, development, testing, and evaluation (RDT&E). That is up $35 billion (about 50 trillion won) from the previous year. U.S. defense AI corporations Obviant said, "By raising the expenditure cap for next-generation technology development, a foundation has been laid to support the Defense Ministry's modernization and rapid prototyping efforts in the new year."
The North Atlantic Treaty Organization (NATO), a collective security and defense alliance of the West, also decided to invest 5% of annual gross domestic product (GDP) in defense spending by 2035. The main destination is also research and development (R&D). Heli Tirma Klaar, a researcher at the German Marshall Fund (GMF), a U.S. think tank, said, "The increase in expenditure will provide critical momentum for allies to expand investment in advanced cyber and defense technologies that will maintain a decisive edge in modern warfare."
The surge of money into European startups with advanced weapons technology is in the same vein. According to global startup data platform Dealroom, $2 billion (about 3 trillion won) flowed into European AI defense startups last year alone. That is double the 2024 figure ($1.1 billion). U.S. business outlet CNBC said, "As defense budgets rise in many countries due to the unending Russia-Ukraine war and pressure from the Trump administration, investors are moving to seize the opportunity."
◇ Korea's defense sector also expands investment… developing AI pilots and advanced defense systems
The Korean government and defense industry also plan to further accelerate advanced weapons R&D this year. The Defense Acquisition Program Administration set this year's defense R&D budget at a record 5.8386 trillion won. In particular, 228.7 billion won—1.5 times last year's—will be invested in drones and robots equipped with AI.
Although the weight of defense R&D has shifted to the private sector compared to the past, developing weapons systems still carries too much risk for private corporations to shoulder alone. It requires massive funding and long development periods. Since the military is the first buyer of new weapons, the government budget is a gauge of the nation's overall will toward advanced weapons.
With government support combined with investments by major domestic defense corporations, advanced weapons development is expected to gain more traction this year. Hanwha Aerospace is developing the "loitering precision-guided weapon (L-PGW)," which detects targets using in-flight AI technology and launches a self-destructing drone to strike the enemy, and the unmanned aircraft (GE-STOL), which can take off and land even on ship decks or rough ground with runways of around 100 meters.
Hanwha Systems and Hyundai Rotem are each researching an advanced defense system, the active protection system (APS), which detects and intercepts threats such as drones and missiles to enhance survivability; development is expected to be completed around 2027–2028. Hyundai Rotem is also participating in the hypersonic vehicle "HYCORE," which travels at Mach 5 (Mach 1 = 350 meters per second). It designs, manufactures, and assembles the combustor, which serves as the engine.
LIG Nex1 is developing an "AI command, control, and communications system (C4I)" that uses AI to analyze reconnaissance information in real time to respond and issue orders, as well as the "Haegeom" series of unmanned surface vessels equipped with autonomous driving, remote control, reconnaissance, combat, and stealth capabilities.
KAI is focusing on "manned-unmanned teaming (MUM-T)." From the AI pilot "KAI-LOT," which autonomously performs missions by independently recognizing and analyzing battlefield situations, to the KF-21 sixth-generation fighter with AI piloting capability, and the all-purpose unmanned aircraft that performs various missions such as reconnaissance, surveillance, and strike—all are bundled and implemented under the name MUM-T.
Live funding and facilities to back this up have also been secured. KAI has said it will invest 1.5 trillion won from 2023 to 2027 and 3 trillion won from 2028 to 2033 in new technology and product development. According to the corporate value enhancement plan Hanwha Aero released last year, a total of 17 trillion won will be invested from 2025 to 2028 alone. LIG Nex1 also invested nearly 400 billion won last year to build state-of-the-art research and development and testing facilities.
◇ Korea evolves into a weapons exporter… "Future investment is a means of long-term growth"
Last year, Korea's defense industry benefited from an explosive increase in global consumption and replacement demand for traditional weapons systems such as ammunition, self-propelled artillery, and tanks. According to Hanwha Investment & Securities, the defense export share of Hanwha Aerospace and Hyundai Rotem is estimated to have surged from 22.3% and 18.3% in 2022 to 58.4% and 70.9% last year, respectively.
Lee Jae-gwang, an analyst at NH Investment & Securities, said, "Korea is evolving from a major weapons importer to a major weapons exporter," adding, "Considering deepening geopolitical conflicts, the fulfillment of remaining contracts with Poland, and expectations for large orders in the Middle East, order backlogs are likely to continue increasing going forward."
Advanced weapons are a means to add thrust to Korea's defense sector, which has just begun to take off. Han Young-su, Head of Team at Samsung Securities, said, "The rapid rise of Korea's defense industry is judged to be a structural change that goes beyond a simple cyclical upturn," adding, "Investment activities by major domestic defense companies can sustain their long-term growth."
He added, "Major domestic defense companies are using the cash they have secured to expand production capacity and cover development costs to enter new defense markets," and, "If these investments succeed, they will strengthen the companies' standing in the industry and play a major role in defending profitability even during future downturns."